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The stock market isn't the only thing that has set records this spring. Barron's semiannual Big Money poll of professional investors also is setting a record -- for bullishness, that is. In our latest survey, 74% of money managers identify themselves as bullish or very bullish about the prospects for U.S. stocks -- an all-time high for Big Money, going back more than 20 years. What's more, about a third of managers expect the Dow Jones industrials to scale the 16,000 level by the middle of next year, notwithstanding a dismal week of selling that left the blue-chip index at 14,547.51 on Friday.

A quick trip through history reveals that only 45% of managers were bullish in the spring of 1999, and 54% in the fall of that year, even as the dot-com boom was inflating. Similarly, bullish sentiment was in the mid-40% range in the mid-2000s, as the housing market was on the boil and stocks last were hitting fresh peaks.

Scott Pollack for Barron's

Six months ago, just 46% of managers were bullish, down from 55% in the spring 2012 poll. Stocks have rallied 10% since our fall survey was published on Oct. 29.

This spring's survey is notable, as well, for the dearth of bears: A mere 7% of respondents are pessimists today, down from 27% last fall. The remaining bears looked pretty smart last week, as the Dow lost 2.1%, and commodities prices plummeted. But recent conversations with other Big Money managers suggest they expect stocks to resume rising, despite a litany of concerns -- about fiscal gridlock in the U.S., the debt crisis in Europe, money-printing worldwide, and a still-sluggish global economy.

Professional investors remain well ahead of their clients in bullish sentiment. Sixty-two percent say their clients are bulls on stocks now, while 38% claim their customers are bears.

THE BIG MONEY BULLS have Dow 15,000 firmly in their sights. Based on their mean prediction, the industrials will finish the year at 15,136, some 4% above current levels, and reach 15,750 by mid-2014, for a gain of 8.3% from Friday's close.

As for Dow 16,000, it implies a 10% advance. And more than a fourth of our respondents think the rally won't stop there.

The managers expect the Standard & Poor's 500 to trace a similar path in the months ahead, advancing 4.2%, to 1621, by year end, and 8.2%, to 1682, by the following June. Their mean Nasdaq forecast for Dec. 31 -- 3440 -- suggests a further gain of 7.3% for the tech-heavy index, which they say could hit 3573 in next year's first half.

Tim Call, chief investment officer at Capital Management, near Richmond, Va., sees growth in both the economy and the stock market accelerating for four reasons. Housing, he notes, is reviving after a five-year recession. Auto manufacturing also is picking up, and the energy industry is building the requisite infrastructure to exploit the discovery of domestic shale oil and gas. That will lead to U.S. energy independence and the return of plastic and synthetic-rubber manufacturing domestically. Finally, the absence of inflation is overstating consumer wealth, Call says.

Call expects the Dow to rally to 16,000 by June 2014. Bonds present the real risk, he says, while stocks are "underappreciated and overlooked."

The bull market is hardly in its infancy, our respondents acknowledge, but neither is it "game over." To put it in baseball terms, 61% say the rally is somewhere between the fifth and seventh innings. That's roughly consistent with their views on valuation: Fifty-eight percent declare the market fairly valued, and 26% call it undervalued.

"The amount of money that's playing defensive is astronomical," says Robert Lutts, president of Cabot Money Management in Salem, Mass. "Main Street isn't yet in Wall Street. It is still scared to death. In the past couple of years, the professional money started to flow in. This is just the beginning of new flows that will push indexes even higher."

Lutts, who expects the Dow to scale 17,500 by mid-2014, notes that two long-delayed, midsize real-estate projects are under way in Salem -- a bullish development that is being duplicated nationwide. "I love it when my clients push back," he says. "They're reading the headlines too closely, and coming away with myopic negative impressions. Folks continually underestimate the resilience of the American economy and entrepreneur."

WHAT WOULD SEND STOCKS SHARPLY higher in coming months? The managers cite rising corporate earnings, first and foremost, followed by any sign in Washington of progress toward a bipartisan budget deal. "A government with a severe spending problem is no different than a person with a severe drinking problem," says John Boland, of Maple Capital Management in Montpelier, Vt. "In the short run, it might not matter, but longer-term, the problems are deadly. Without an intervention, the U.S. is rapidly heading toward cirrhosis of the economy."

Fortunately, perhaps, only 16% of managers say their investment decisions are heavily influenced by U.S. fiscal policy. But many seem worried about trends at home, and the nation's place in the world. Fifty-five percent of managers don't believe that the U.S. is a waning world power, but 37% do. Small wonder the Big Money folks finger political dysfunction as one of the biggest challenges facing the market, along with Europe's problems, potential earnings disappointments, and a possible deceleration in economic growth.

Even so, the managers aren't just bullish on U.S. stocks, but on equities generally. Some call it the TINA trade, for "there is no alternative" to stocks in a slow-growth, ultralow-interest-rate world. Eighty-six percent of poll respondents are bullish on stocks for the next 12 months, and a whopping 94% like what they see for the next five years. Real estate has similar approval ratings.

Scott Westphal, managing director, real- estate securities, at Cornerstone Real Estate Advisers in Stamford, Conn., is neutral on stocks. But he notes that undervalued real-estate investment trusts, yielding about 4%, could provide a defense against a possible market correction. He sees a 10% pullback in equities in the next six months that could take the froth off the market. "Ultimately, it will be a good thing because it will draw more people into the market and broaden the base of equity investors," says Westphal, who likes select regional-mall and apartment REITs.

The managers are split in their near-term assessment of commodities, but bullish longer-term. Most are skeptical about gold for this year, which seems like a prescient call in view of the metal's ugly 5.3% slide last week, to $1,402 a troy ounce. As for bonds and cash, they have few fans at the moment. Nearly all of the managers expect fixed-income assets to be a bad bet in the next five years.

The managers are especially enthusiastic about emerging markets, particularly for the long haul. Twenty-seven percent think emerging markets will offer the best investment returns in the next six to 12 months, but 45% expect them to be the best performers over five years, something only 30% say about U.S. stocks. Near-term, our respondents also are fans of Brazil and Japan, mixed on the prospects for China, and decidedly cool toward Europe.

BARRON'S CONDUCTS THE BIG MONEY poll every spring and fall, with the help of Beta Research in Syosset, N.Y. The latest poll was e-mailed in mid-March and drew responses from 135 institutional investors from across the country, representing both smaller firms and some of the largest asset managers in America.

Poll participants look for technology, energy, and financial stocks to lead the market in the next 12 months. On the downside, roughly one in four expect utilities to be the biggest laggards. The managers also are downbeat about the prospects for consumer staples, consumer cyclicals, and basic-materials shares.

Intel is a favorite among Big Money managers, despite -- or perhaps because of -- its punk performance in the past year. The stock has fallen almost 20%, to $22. It is trading for 10.8 times 2014 estimated earnings of $2.03 a share, and yields 4%, which may explain much of the attraction. "Once you look past the headlines, things are getting better at Intel," says Loomis Sayles Chairman Dan Fuss, who likes the semiconductor maker's dividend and cash flow. With the PC business threatened, he calls Intel a "controversial" pick, but the sort that can produce compelling returns.

APPLEAAPL -0.8743973196044782%Apple Inc.U.S.: NasdaqUSD121.3
-1.07-0.8743973196044782%
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Volume (Delayed 15m)
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41225145AFTER HOURSUSD121.45
0.150.1236603462489695%
Volume (Delayed 15m)
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1659808
P/E Ratio
14.006928406466512Market Cap
691740216377.936
Dividend Yield
1.7147568013190437% Rev. per Employee
2409500More quote details and news »AAPLinYour ValueYour ChangeShort position(AAPL) IS ANOTHER stock about which the Big Money crowd is passionate -- both positively and negatively. The shares closed at $390.53 Friday, after peaking at $705 in mid-September, and now trade for nine times the $43.58 a share the company is expected to earn in the fiscal year ending in September. "Product cycles are faster, and they have to compete," says John Roberts, of Denver Investments. "But there still is a lot of room for Apple to take market share on the desktop."

Although few in number, the Big Money bears don't lack conviction, especially with the market now going their way. They predict, on average, that the Dow will drop to 13,500 by year end, and make no progress through the following June. They see the S&P 500 falling to the 1440-to-1450 region, and the Nasdaq backtracking to about 3000. The S&P closed at 1555.25 last week; the Nasdaq, at 3206.06.

Big companies might have worked wonders to lift profits by cutting costs, but that strategy has worn thin, says Greg Roeder, a portfolio manager at Adirondack Funds, in Guilderland, N.Y. He predicts the Dow will drop by 14% in the next year. "Top-line growth will be needed to push stocks higher, and it will be a huge challenge, given fiscal problems in Europe and the U.S., as well as high energy prices," he observes.

Roeder adds that baby-boomer clients can't handle much investment risk, which could complicate the market's trajectory further. "While we loved this market in early 2009 and 2010, we are now paring our winners and reallocating capital to quality names," he says.

BP
(BP) isn't the sort of quality name that springs to many minds, especially after the company's involvement in a massive oil spill in the Gulf of Mexico two years ago, but Roeder begs to differ. At a recent $40.99, the stock was trading for only 1.0 times estimated book value of $40 a share, and nine times this year's $4.77 in estimated earnings. Roeder calls it a turnaround story that "everyone" loves to hate.

MARC DION, A PORTFOLIO MANAGER at Morgan Dempsey, in Milwaukee, also is bearish on stocks, and worries about an "unusual" level of complacency on the economy. He also is concerned about the Federal Reserve's easy-money policies, aimed at holding down interest rates to spur economic growth. "The value paradigm is broken," he says, citing the effects of near-zero rates. "Everything is risk-free. It's become a race to debase. I feel like I'm part of some weird experiment that isn't really working. Where are the sustainable economic successes? I haven't seen any."

Even long-range bulls, such as Christopher Tsai, founder of Tsai Capital in New York, see resistance to stocks in the near term, given record-low interest rates and record-high profit margins that eventually must revert to historic means. Ultimately, Tsai sees demographics pushing stocks higher.

While baby boomers will be selling shares to fund retirement, "there has been little discussion about wealth accumulation among the echo boomers, and the positive effect on prices that this bucket of money is likely to generate," he comments.

By some calculations, the wealth of the post baby-boom generations could grow to $28 trillion from $2 trillion now, as they both earn more and start inheriting money from their parents.

ALTHOUGH MOST BIG MONEY MANAGERS are stockpickers, the macroeconomic outlook helps shape their investment decisions. It looks decent, but hardly great, to them. Seventy-two percent of poll respondents expect the U.S. economy to keep plodding along in the next year at an annual rate of 2% to 3%, while 44% predict that the growth rate of gross domestic product will average the same 2.5% in the next 10 years that it has for the past 25. That said, 37% see the economy growing at a slower pace in the future.

"The U.S. is doing OK, but [the economy] is being fueled by a flood of liquidity," says James Vanasek, of VN Capital in New York, referring to the Fed's easy-money monetary policies. "The big question is what will happen when it stops."

Vanasek expects the Dow to lose about a thousand points between now and June 2014, although he professes to be bullish over the much longer term.

Fuss, of Loomis Sayles, says 2.5% GDP growth is strong enough to keep the Fed happy, but not strong enough to bring the unemployment rate down to the central bank's target of 6.5%. Even so, about half of the Big Money managers don't expect the Fed to take further measures, such as quantitative easing, in the next six months. Forty-seven percent think the central bank will start raising interest rates again in 2014, after several years and multiple rounds of bond-buying, while 35% look for such action to come in 2015.

Bond yields have been tumbling since early March, when the yield on 10-year Treasuries stood at 2.07%. Last week the 10-year settled at 1.70%, evidence of "risk off" after a two-month stretch of good news sent investors into equities. Forty-five percent of our respondents expect the 10-year yield to back up to 2% in the next six months, while 39% think the benchmark Treasury could yield 2.5% six months from now.

FED CHAIRMAN BEN BERNANKE, architect of the central bank's QE strategy and inspiration for similar schemes around the world, ends his second term in January 2014, and his plans thereafter are subject to much speculation. Should Bernanke decide to step down and return to private life, 77% of Big Money managers -- and many other observers -- think he would be succeeded by Janet Yellen, an economist, former professor, and current vice chair of the Fed's Board of Governors. Seventeen percent of managers, however, think President Barack Obama would tap William Dudley, a former Goldman Sachs economist who currently serves as president of the Federal Reserve Bank of New York.

Interestingly, only a fourth of our respondents say Yellen, a defender of quantitative easing, would be their top choice for Fed chair, and only 10% would pick Dudley. Eleven percent say they'd favor Richard Fisher, president of the Federal Reserve Bank of Dallas and an inflation hawk, while another 10% would like to see John Taylor, a professor of economics at Stanford University and an outspoken critic of current Fed policy, named to lead the institution.

Inflation worries the U.S. money managers as much as it worries the folks at the Fed, and 60% of our respondents think it will be a bigger threat in the next 12 months than it is now. Excluding food and energy, the consumer price index rose by an annualized 1.9% in March, below expectations. But the Big Money crowd sees CPI jumping 2.51% next year.

Inflation fears could push up the price of gold. The managers' mean prediction for 2014 puts bullion back at $1,600, where it traded before this month's selloff. In the near term, however, more losses could be in store. "When they start having seminars at the local Holiday Inn on how to invest in something, it's usually over," says Granite's Schermerhorn, who argued recently that gold prices had been inflated by excess speculation.

The Big Money managers also keep an eye on foreign exchange, and most expect the dollar to stay strong. Indeed, 83% see the greenback rising against the euro in the next 12 months, and 78% see it up against the yen. Lately, the buck has been especially strong against the Japanese currency, a consequence of Japan's new policy to drive down interest rates to spur export growth.

The managers show little enthusiasm for Europe, which has been grappling with sovereign-debt losses and economic crises. Sixty-five percent of respondents proclaim themselves bearish on European stocks for the next 12 months, and 75% believe it will take five to 10 years for the euro zone to resolve its problems. That's up significantly from 58% last fall.

Jeff Schoenfeld, a partner at Brown Brothers Harriman, says Europe is paralyzed and is ignoring its main problem -- a sick banking system. "A healthy banking system is a precondition for things getting better," he observes. "European banks are shrinking their balance sheets to meet global capital standards, and that's not what to do to keep an economy growing."

THE BIG MONEY MANAGERS see subdued growth for corporate profits of 5% to 6%, both this year and next. They expect the market's price/earnings ratio to hold steady at 15.7. The managers plan to reduce their cash and fixed-income positions in coming months, and to invest more in stocks and alternative assets.

One thing is for sure: This has been a tough year for active money managers. Only 59% of our pros are beating the S&P 500 in their client accounts, and even fewer are doing so with their own money.

Here's a final prediction for 2013: The market will continue to surprise.